Thursday, January 31, 2013

Managing the Seasonal Franchise

Both service and product related franchise systems and small businesses often have to navigate the seasonality of their business. As an owner of a seasonal business you are likely constantly facing the off-season revenue cliff and trying to figure out ways to keep the business stable during the off-season.

This post offers a few tips on helping you overcome the off-season revenue cliff that can help sustain your business year-round.

1.    Modify your labor costs to reflect the applicable revenue season.
As a rule of thumb, your labor costs should not exceed 20% - 30% of your revenue at any given time. As a seasonal business your labor costs need to adjust up and down depending on whether you are in the high or low season of your business. This means having fewer employees when you are bringing in less money. Decide which employees are necessary for operations and stick with that smaller scaled-down staff during the low season. 
1.    Try and modify your lease agreements.
Many landlords are willing to work with the seasonal business to allow for higher rents in the high season and lower rents in the low season. The landlord that understands the nature of your business and the flow of revenue during different times of the year is often more likely to work out a solution that will benefit both you and the landlord.

The same could be said of vehicle leases. If your seasonal business is reliant on company vehicles, work with your lender to come up with a viable solution to accommodate the flux in your revenue stream.

2.    Adjust inventory levels.
This seems common sense, but many seasonal businesses forget to adjust their inventory down during the low season. If you operate a year-round business that has a high and a low season, you will need to adjust what inventory and even what offerings are available during the low versus the high season. Take time during the low season to create different purchasing matrices that can be used during the different revenue seasons.

(helpful article by the National Food Service Management Institute) 

3.    Find new revenue streams.
This is not as easy as it sounds, but it is a worthwhile practice. As a seasonal business, you do have an advantage in being able to take time to evaluate your business and to streamline the offerings and decide if adjustments in low season offerings can and/or need to be made. Use this time to plan ahead for how to attract new business and customers during the peak season and how to maximize your profits once the high season hits.

This can also mean trying to diversify what you offer your customers. Examine your business and decide if your offering easily crosses into an off-season offering. This is often easier for certain industries. For example, it is more logical for a landscaping business to cross into the snow removal business than for an ice cream establishment to cross into another industry. Be creative. There may be something your business can succeed at with little cost or effort during the low season to help sustain the business and keep the revenue flow moving in a positive direction.

There are several other helpful articles available to the small business owner. Speak to others in the industry and take time to analyze your business. You may be able to save on costs or create new revenue streams in ways you had not previously thought possible.